What? Where? When? and … how much?

Financial Mirror (Cyprus) - - FRONT PAGE -

The Euro­pean Bank for Re­con­struc­tion and De­vel­op­ment, a house­hold name in east­ern Euro­pean pri­vati­sa­tions in the ear­lier part of nearly two decades ago, has a new role to play in Cyprus – help­ing re-en­gi­neer some of the eco­nomic sec­tors that failed to see the sign of the times and did not pre­pare to the cri­sis that fol­lowed.

That is why veteran economist-banker Li­bor Krkoska, with 18 years un­der his belt at var­i­ous EBRD mis­sions, is now Head of Of­fice in Cyprus, look­ing into the op­por­tu­ni­ties that will arise and sift­ing through the in­vest­ment pro­pos­als for the 600 mln euros the bank plans to invest on the is­land.

In other coun­tries and pri­mar­ily in east­ern Europe, the EBRD has had an open-ended pres­ence, with on­go­ing in­vest­ment and strate­gies. In Cyprus it is dif­fer­ent as the gov­ern­ment and the Euro­pean ‘mer­chant bank’ have agreed to a six-year time frame, ex­pir­ing in 2020.

Krkoska has al­ready met with so­cial part­ners and is con­fi­dent that by in­tro­duc­ing co-fi­nanc­ing, Cypriot en­trepreneurs will come through, with the main out­come be­ing re­struc­tur­ing, not just of busi­nesses, but even the way of think­ing.

“It will be hard, but once it’s done, (Cyprus) will be pre­pared for the next cri­sis, what­ever it might be,” he told the Fi­nan­cial Mir­ror in an in­ter­view.

“The in­vest­ment cli­mate is more pos­i­tive now and the econ­omy is mov­ing in a very good di­rec­tion,” he added.

“There are a lot of par­al­lels with the sit­u­a­tion in Cen­tral Europe in the 1990s, where, too, they suf­fered from a fi­nan­cial cri­sis, but the bank­ing sec­tor was ac­tu­ally quite strong. Here we have to re­build it.”

The EBRD usu­ally looks at eq­uity in­vest­ments, but in Cyprus the fo­cus will be more on trans­ac­tions, not only eq­uity, co-fi­nanc­ing with lo­cal banks and the gov­ern­ment through struc­tured funds, deal­ing with chronic is­sues such as non-per­form­ing loans (NPLs) that have plagued lo­cal banks, but also the in­tro­duc­tion of new fi­nan­cial prod­ucts.

He said that the EBRD would pre­fer to “front load” its in­vest­ments, thus the 600 mln euros that has been pledged so far could be evenly dis­trib­uted at about 100 mln a year.

“We will see what we can repli­cate from our East Euro­pean ex­pe­ri­ence,” Krkoska said, with his pri­mary goal at present be­ing the re­cruit­ment of 8-9 lo­cal staff of an­a­lysts, bankers, ac­coun­tants, all of whom will be trained to have a bet­ter out­look of small to medium sized en­ter­prises (SMEs).

Once the of­fice is fully up and run­ning, some time in Novem­ber, the fo­cus will be on the cor­po­rate sec­tor, sus­tain­able and re­new­able en­ergy, as well as ad­vi­sory ser­vices to help pos­si­bly 40-50 SMEs.

Although the EBRD pol­icy is for eq­uity in­vest­ments of no more than 20% and for fund­ing of more than 10 mln euros, the Cyprus of­fice will be look­ing at smaller trans­ac­tions of 1 mln euros and up, but al­ways look­ing at promis­ing en­ter­prises with in­no­va­tive and ex­port-ori­ented ac­tiv­i­ties.

“The support pro­vided to SMEs will be an im­por­tant part of our ac­tiv­i­ties, but at the same time your banks and the fi­nan­cial sec­tor need deep re­struc­tur­ing, with the fo­cus be­ing on cor­po­rate gov­er­nance,” Krkoska said.

He said that in the case of the Bank of Cyprus in­vest­ment, where the EBRD par­tic­i­pated in the cap­i­tal rais­ing by in­ject­ing some 120 mln euros for a 5% eq­uity stake, the in­vest­ment it­self was ex­pected, it was the speed with which it con­cluded that was un­ex­pected.

Three ar­eas that the EBRD will be look­ing into, run­ning par­al­lel to the gov­ern­ment’s roadmap for the pri­vati­sa­tion of its state-owned en­ter­prises, are tele­coms, en­ergy and the ports con­ces­sions. Th­ese could oc­cue in the next 2-3 years, he said.

“By in­vest­ing in the pre-pri­vati­sa­tion stage, we will be able to help en­hance the re­struc­tur­ing of th­ese com­pa­nies so that when they are sold the gov­ern­ment will get the high­est pos­si­ble price,” Krkoska said, adding that all of th­ese in­vest­ment will have a level of com­pli­ca­tion. For ex­am­ple, the tele­coms sec­tor will be the eas­i­est, but the en­ergy sec­tor will be the most com­pli­cated as “Cyprus needs a bet­ter un­der­stand­ing and bet­ter reg­u­la­tion of the sec­tor.”

At the same time, he said that it will not busi­nesses that need re­struc­tur­ing.

“Even the labour force will need re­struc­tur­ing, while in ev­ery­thing we do there will be a sig­nif­i­cant in­put on en­vi­ron­men­tal is­sues, as the rest of the EU has set some very high stan­dards in this area.” That is why the EBRD will even be con­sid­er­ing in­vest­ments that re­sult in ef­fi­cien­cies, use of en­ergy sav­ing sys­tems to cut costs and bet­ter util­i­sa­tion of the wa­ter re­sources sec­tor.

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